Spouse shareholder -> Dividends

[TheCyclingProgrammer]

[QUOTE=Sub;2575423]That is based on the same Arctic Systems ruling. In order to be exempted from the S624/S660 there are conditions, one of which is that dividend income your spouse is receiving is an income she/he spending at their will. By 'genuine arrangement' I meant that you really giving your shares and dividends to your spouse, not just trying to use their personal allowance.



Sorry, I re-read your original post and saw that you said "paying their dividends into *your* account" which I agree is not a good idea. I mis-read what you were saying.

[Sub]

What are you basing this on?

That is based on the same Arctic Systems ruling. In order to be exempted from the S624/S660 there are conditions, one of which is that dividend income your spouse is receiving is an income she/he spending at their will. By 'genuine arrangement' I meant that you really giving your shares and dividends to your spouse, not just trying to use their personal allowance.

[TheCyclingProgrammer]

*That should be 'genuine' arrangement or at least look like one. If you will be transferring 20K paid to your spouse to your own account next day - if HMRC will investigate that may end up quite bad way.

What are you basing this on? So long as the share transfer/issuing of shares is done correctly, that the shares meet the "safe" criteria as already tested by the Arctic case (so "ordinary" shares with full rights to capital on winding up), the timing of a subsequent dividend payment isn't really of any relevance.

There's no need for a "genuine" arrangement, whatever that means - unless your spouse is purchasing the shares from you at market value (which would take the transaction out of the scope of the settlements legislation completely anyway), then the gifting of shares to a spouse in this way is always going to be a bounteous arrangement. That's what makes it a settlement in the first place and the reason why the Arctic case was even a thing.

What prevents it from being taxable on the settlor in this situation is the "spouse exemption", which only requires that the settlor gifts the shares without retaining any interest in them (i.e. they are gifted unconditionally with no further rights to the shares or any derived income - no strings attached) and that the shares are more than just a right to income, nothing more.

[oilboil]

*That should be 'genuine' arrangement or at least look like one. If you will be transferring 20K paid to your spouse to your own account next day - if HMRC will investigate that may end up quite bad way.

The other solution is o do what 90% of all spouse's do and just have a joint account in the first place; if it can be shown that the joint account is the way both parties access funds then there is no issue

However if you do have separate accounts you "could" fall foul of the issue mentioned above

[malvolio]

Always best to get your accountant's advice on this. I am sure I read somewhere HMRC were wanting to do something about this very topic, something along the lines of proving they had a real role within the organisation, but alas I cannot find where I read it (granted not the most helpful piece of information!).

WLB.

That would be the Family Business Tax, rolled out by HMT as a proposal suspiciously quickly after the Arctic defeat in the Supreme Court. It was flattened comprehensively by several interested parties equally quickly.


But in brief shareholding between spouses is pretty much untouchable provided they are the same class of shares. Obviously you have to look at your overall tax position; in years gone by there was no point is my better half having shares/divis since she was already over the HRT threshold

[WLB2018]

Always best to get your accountant's advice on this. I am sure I read somewhere HMRC were wanting to do something about this very topic, something along the lines of proving they had a real role within the organisation, but alas I cannot find where I read it (granted not the most helpful piece of information!).

WLB.

[Sub]

Has anyone found himself in a similar situation? What was your decision? Any recommendation?

You will be better off talking to your accountant first anyway, however there is nothing immediately wrong with split income. In general it is better to use 50/50 split, that means that paying your spouse 20K you must pay 20K also to yourself. Couple of things to consider:

*That should be 'genuine' arrangement or at least look like one. If you will be transferring 20K paid to your spouse to your own account next day - if HMRC will investigate that may end up quite bad way.
*Your spouse will effectively become co-owner of your company. How comfortable you are with that?

Otherwise, quite tax efficient arrangement for a family, however that dividend income will go on top of her other income, so may eventually fall into higher rate band, with 32.5% rate.

[TheCyclingProgrammer]

Her dividends would be added to her other income to determine which dividend rate she pays but the first £2k will be tax free.

[gianni89]

Hi guys,

I've read a few threads on the topic on this forum, but I still have a question on dividends and shared shareholding.

A bit of context:
Both my wife and I have a job whose salary is above the personal allowance and therefore subject to the traditional income tax.
I've now also started a second business as contractor, for which I've created a LTD.
I am now exploring the idea of making my wife a shareholder.
Should I want to pay her £20K dividends a year, would she pay the basic 7.5% dividend tax or would that cumulate on top of her income?

Has anyone found himself in a similar situation? What was your decision? Any recommendation?

Thanks!